Proposed Strategic Budget Model

This resource outlines the main features of the proposed Strategic Budget Model.

The model is all funds transparent; that is, it includes all University funds types, whether restricted or unrestricted, for all University divisions (I-IV). Although all funds for all divisions are included in the model for the sake of transparency, not all funds are considered for reallocation or for the purpose of establishing the Mission Enhancement Fund explained at the end of this document.

**Please note, all dollar amounts provided in this document reflect fiscal year 2012 of operations.**

Following the structure of an income statement, the proposed Strategic Budget Model first considers revenues.

Two types of revenue are portrayed, direct and allocated. Direct revenues are shown directly as generated by each college or school. Allocated revenues—principally tuition, the state appropriation for the Main Campus, and indirect cost recovery revenues—are pooled for reallocation to the schools and colleges by formula.

Direct Revenue – The proposed Strategic Budget Model shows many types of revenue directly as generated. The following revenue types are not reallocated by formula:

All restricted revenues

Differential tuition and course fees

Distance learning fees – graduate level

Division 2, 3, and 4 revenues (excludes indirect cost recovery)

Gifts and private support

Grants and contracts

Government appropriations

Investment Income

Other fees (applies to colleges and schools only)

Other revenue

Sales and services

Allocated Revenue: Tuition –Tuition revenues from both undergraduate students and graduate and professional students are allocated to the schools and colleges using a formula. In order to show clearly the amount of aid and waivers being provided, the tuition amounts illustrated in the Strategic Budget Model reflect gross tuition (i.e., assessed tuition or “sticker price,” before considering aid and waivers provided by the University).

(Gross) Undergraduate Tuition – For each undergraduate student credit hour, the proposed Strategic Budget Model directs 70% of associated gross tuition to the college of instruction and 30% to the student’s college of record (i.e., where the student is enrolled). This division of undergraduate tuition revenue is conducted separately for the resident and non-resident tuition pools, using the corresponding credit hours as the variable for allocating resources.

(Gross) Graduate & Professional Tuition – For each graduate/professional student credit hour, the proposed Strategic Budget Model directs 100% of associated gross tuition to the student’s college of record (i.e., where the student is enrolled). This division of graduate/professional tuition revenue is conducted separately for the resident and non-resident tuition pools, using the corresponding credit hours as the variable for allocating resources. The proposed Strategic Budget Model does not intend to create a disincentive for interdisciplinary collaboration. Where graduate/professional students are known to take courses from schools or colleges other than their college of record, it will be desirable to develop written revenue sharing agreements to ensure that units providing instruction to other units’ students will receive a share of allocated gross tuition.

* FY2012 illustrated gross graduate and professional tuition includes graduate and professional summer tuition and excludes graduate and professional distance learning.

Allocated Revenue: Student Aid and Waivers – The proposed Strategic Budget Model allocates student aid and waivers using two approaches, depending on student level. Student aid and waivers are allocated across academic units rather than being allocated to a central support unit. Because the proposed model allocates all undergraduate, graduate, and professional tuition to the academic units and because these allocations reflect gross tuition (the amount that could have been collected), by allocating aid and waivers formulaically, the model can then illustrate net tuition, in other words, the amount of tuition revenues actually collected across the University.

Decision to award graduate waivers is managed locally (college or school) rather than centrally

Local good:
Allocated in proportion to actual waivers awarded

* Amounts represent expenses previously located within administrative units and not additional aid that may be funded by colleges directly.

Allocated Revenue: State Appropriations (Division 1) – The proposed Strategic Budget Model uses the Division I state appropriations to create funding to support sponsored programs and resident (in-state) student instruction and academic support.

The 70% split to support resident instruction and academic support provides financial resources to cover the discounted price paid primarily by Alabama resident students and helps to create an incentive to both instruct and retain students. This amount is allocated in proportion to gross resident undergraduate, graduate, and professional tuition

The 30% split to support sponsored programs reflects the strategic importance of sponsored programs activity, recognizes the high indirect costs associated with conducting these activities, and serves as an additional revenue source beyond the full allocation of indirect cost recoveries [See: Allocated Revenue: Indirect Cost Recovery (ICR)]. These funds are allocated based on a college or school’s percent of contracts and grants spanning Divisions 1, 3, and 4. (Note: for purposes of defining sponsored programs activity, contracts and grants that fund construction or scholarships and fellowships are excluded as they do not receive any overhead reimbursements from sponsoring agencies).

Allocated Revenue: Indirect Cost Recovery (ICR) – The proposed Strategic Budget Model allocates 100% of indirect cost recovery revenues to the college or school that generated those revenues. This is a change from current allocation methods, which offer four different ways to distribute these funds across campus. In FY2012, academic units collected $4.6MM in ICR. By distributing ICR as generated in FY2012, about $6.6MM in additional revenue would have been distributed to academic units.

After presenting direct and allocated revenues, the proposed Strategic Budget Model next presents expenses for each school or college.

As with revenues, two types of expenses are portrayed, direct and allocated. Direct expenses are shown directly as incurred by each college or school. Allocated expenses—those associated with central unit allocations—are grouped and allocated to the schools and colleges by formula.

Direct Expenses – The proposed Strategic Budget Model portrays direct expenses just as they are portrayed within the current financial system. The University’s current budget process focuses on this element of the financial picture. Direct expenses include items such as salaries, employee benefits, travel, equipment, supplies, repairs and maintenance, etc.

Allocated Expenses: Central Unit Allocations – Because the proposed Strategic Budget Model allocates nearly all University revenues to the academic schools and colleges, funds required for necessary central unit services must be pooled and allocated to the schools and colleges. The proposed approach groups central service units into groups by type of service provided, then allocates a portion of these units’ expenses to each school, college, auxiliary, and division in proportion to its share of a selected allocation variable.

Model Unit

Example Units

Allocation Variable

Academic & Student Services

Enrollment Services
Library
Provost Office
Student Affairs

Credit Hours Instructed

Administration

AVP for Business and Finance Executive VP and CFO
Office of the President
Risk Management & Safety

This approach identifies a way to pay for central unit services and provide transparency into their cost of operation. As the model becomes established, a governance committee, with representation from the schools and colleges, will be needed to provide a formal process that reviews budgets and service level proposals. Though allocation variables are used, the budgets for central unit do not automatically increase.

The final component of the proposed Strategic Budget Model is the creation of a Mission Enhancement Fund. This critical component makes it possible to assure ongoing focus on the University’s mission and priorities across the full range of the academic schools and colleges.

Mission Enhancement Fund – The proposed model creates resources to assure continuity of institutional priorities and capacity for strategic investment. These funds have a threefold purpose:

To guarantee a “neutral starting point,” with resources on hand to fill anticipated deficits at the onset of implementation

To enable leadership to steer the institution effectively toward fulfillment of its mission and the accomplishment of its goals

To provide resources that can fund common investments or kick-start initiatives

Because all major revenue streams have been directed to the academic schools and colleges, the Mission Enhancement Fund must be created by means of a participation rate applied to certain revenues of all schools and colleges. (Excluded from the participation rate are all sponsored program, indirect cost recovery, gifts and private support, and investment income revenue.) Thus each academic school or college would contribute to the Mission Enhancement Fund and would be eligible to receive resources from the Fund. Other University units would neither contribute to the Mission Enhancement Fund nor be eligible to receive resources from it. This exclusion would apply to all auxiliary units, as well as to Division II (AUM), Division III (Alabama Agricultural Experiment Station), and Division IV (Alabama Cooperative Extension System).